(a) In General- Paragraph (1) of section 108(a) of the
Internal Revenue Code of 1986 is amended by striking `or' at
the end of subparagraph (C), by striking the period at the
end of subparagraph (D) and inserting `, or', and by
inserting after subparagraph (D) the following new
subparagraph:

(E) the indebtedness discharged is
qualified principal residence indebtedness which is
discharged before January 1, 2010.'.

(b) Special Rules Relating to Qualified Principal
Residence Indebtedness- Section 108 of such Code is amended
by adding at the end the following new subsection:

(1) BASIS REDUCTION- The amount
excluded from gross income by reason of subsection
(a)(1)(E) shall be applied to reduce (but not below
zero) the basis of the principal residence of the
taxpayer.

(2) QUALIFIED PRINCIPAL RESIDENCE
INDEBTEDNESS- For purposes of this section, the term
`qualified principal residence indebtedness' means
acquisition indebtedness (within the meaning of section
163(h)(3)(B), applied by substituting `$2,000,000
($1,000,000' for `$1,000,000 ($500,000' in clause (ii)
thereof) with respect to the principal residence of the
taxpayer.

(3) EXCEPTION FOR CERTAIN DISCHARGES
NOT RELATED TO TAXPAYER'S FINANCIAL CONDITION-
Subsection (a)(1)(E) shall not apply to the discharge of
a loan if the discharge is on account of services
performed for the lender or any other factor not
directly related to a decline in the value of the
residence or to the financial condition of the taxpayer.

(4) ORDERING RULE- If any loan is
discharged, in whole or in part, and only a portion of
such loan is qualified principal residence indebtedness,
subsection (a)(1)(E) shall apply only to so much of the
amount discharged as exceeds the amount of the loan (as
determined immediately before such discharge) which is
not qualified principal residence indebtedness.

(5) PRINCIPAL RESIDENCE- For purposes
of this subsection, the term `principal residence' has
the same meaning as when used in section 121.'.

(c) Coordination-

(1) Subparagraph (A) of section 108(a)(2) of such
Code is amended by striking `and (D)' and inserting
`(D), and (E)'.

(2) Paragraph (2) of section 108(a) of such Code is
amended by adding at the end the following new
subparagraph:

(a) In General- Subparagraph (D) of section 216(b)(1) of
the Internal Revenue Code of 1986 (defining cooperative
housing corporation) is amended to read as follows:

(D) meeting 1 or more of the
following requirements for the taxable year in which the
taxes and interest described in subsection (a) are paid
or incurred:

(i) 80 percent or more of the
corporation's gross income for such taxable year is
derived from tenant-stockholders.

(ii) At all times during such
taxable year, 80 percent or more of the total square
footage of the corporation's property is used or
available for use by the tenant-stockholders for
residential purposes or purposes ancillary to such
residential use.

(iii) 90 percent or more of the
expenditures of the corporation paid or incurred
during such taxable year are paid or incurred for
the acquisition, construction, management,
maintenance, or care of the corporation's property
for the benefit of the tenant-stockholders.'.

(b) Effective Date- The amendment made by this section
shall apply to taxable years ending after the date of the
enactment of this Act.

SEC. 5. EXCLUSION FROM INCOME FOR BENEFITS PROVIDED TO
VOLUNTEER FIREFIGHTERS AND EMERGENCY MEDICAL RESPONDERS.

(a) In General- Part III of subchapter B of chapter 1 of
the Internal Revenue Code of 1986 (relating to items
specifically excluded from gross income) is amended by
inserting after section 139A the following new section:

(a) In General- In the case of any member
of a qualified volunteer emergency response organization,
gross income shall not include--

(1) any qualified State and local tax
benefit, and

(2) any qualified payment.

(b) Denial of Double Benefits- In the
case of any member of a qualified volunteer emergency
response organization--

(1) the deduction under 164 shall be
determined with regard to any qualified State and local
tax benefit, and

(2) expenses paid or incurred by the
taxpayer in connection with the performance of services
as such a member shall be taken into account under
section 170 only to the extent such expenses exceed the
amount of any qualified payment excluded from gross
income under subsection (a).

(c) Definitions- For purposes of this
section--

(1) QUALIFIED STATE AND LOCAL TAX
BENEFIT- The term `qualified state and local tax
benefit' means any reduction or rebate of a tax
described in paragraph (1), (2), or (3) of section
164(a) provided by a State or political division thereof
on account of services performed as a member of a
qualified volunteer emergency response organization.

(2) QUALIFIED PAYMENT-

(A) IN GENERAL- The term
`qualified payment' means any payment (whether
reimbursement or otherwise) provided by a State or
political division thereof on account of the
performance of services as a member of a qualified
volunteer emergency response organization.

(B) APPLICABLE DOLLAR LIMITATION-
The amount determined under subparagraph (A) for any
taxable year shall not exceed $30 multiplied by the
number of months during such year that the taxpayer
performs such services.

(a) In General- Subclause (I) of section 42(i)(3)(D)(ii)
of the Internal Revenue Code of 1986 (relating to certain
students not to disqualify unit) is amended to read as
follows:

(I) single parents and their children
and such parents are not dependents (as defined in
section 152, determined without regard to subsections
(b)(1), (b)(2), and (d)(1)(B) thereof) of another
individual and such children are not dependents (as so
defined) of another individual other than a parent of
such children, or.'.

(b) Effective Date- The amendment made by this section
shall apply to--

(1) housing credit amounts allocated before, on, or
after the date of the enactment of this Act, and

(2) buildings placed in service before, on, or after
such date to the extent paragraph (1) of section 42(h)
of the Internal Revenue Code of 1986 does not apply to
any building by reason of paragraph (4) thereof.

(a) Sale Within 2 Years of Spouse's Death- Section 121(b)
of the Internal Revenue Code of 1986 (relating to
limitations) is amended by adding at the end the following
new paragraph:

(4) SPECIAL RULE FOR CERTAIN SALES BY
SURVIVING SPOUSES- In the case of a sale or exchange of
property by an unmarried individual whose spouse is
deceased on the date of such sale, paragraph (1) shall
be applied by substituting `$500,000' for `$250,000' if
such sale occurs not later than 2 years after the date
of death of such spouse and the requirements of
paragraph (2)(A) were met immediately before such date
of death.'.

(b) Effective Date- The amendment made by this section
shall apply to sales or exchanges after December 31, 2007.

(1) IN GENERAL- Section 6103(e) of such Code
(relating to disclosure to persons having material
interest) is amended by adding at the end the following
new paragraph:

(10) LIMITATION ON CERTAIN
DISCLOSURES UNDER THIS SUBSECTION- In the case of an
inspection or disclosure under this subsection relating
to the return of a partnership, S corporation, trust, or
an estate, the information inspected or disclosed shall
not include any supporting schedule, attachment, or list
which includes the taxpayer identity information of a
person other than the entity making the return or the
person conducting the inspection or to whom the
disclosure is made.'.

(2) EFFECTIVE DATE- The amendment made by this
subsection shall take effect on the date of the
enactment of this Act.

(d) Effective Date- The amendments made by subsections
(a) and (b) shall apply to returns required to be filed
after the date of the enactment of this Act.

SEC. 9. PENALTY FOR FAILURE TO FILE S CORPORATION RETURNS.

(a) In General- Part I of subchapter B of chapter 68 of
the Internal Revenue Code of 1986 (relating to assessable
penalties) is amended by adding at the end the following new
section:

SEC. 6699. FAILURE TO FILE S CORPORATION
RETURN.

(a) General Rule- In addition to the
penalty imposed by section 7203 (relating to willful failure
to file return, supply information, or pay tax), if any S
corporation required to file a return under section 6037 for
any taxable year--

(1) fails to file such return at the
time prescribed therefor (determined with regard to any
extension of time for filing), or

(2) files a return which fails to
show the information required under section 6037,

such S corporation shall be liable for a penalty
determined under subsection (b) for each month (or fraction
thereof) during which such failure continues (but not to
exceed 12 months), unless it is shown that such failure is
due to reasonable cause.

(b) Amount Per Month- For purposes of
subsection (a), the amount determined under this subsection
for any month is the product of--

(1) $85, multiplied by

(2) the number of persons who were
shareholders in the S corporation during any part of the
taxable year.

(c) Assessment of Penalty- The penalty
imposed by subsection (a) shall be assessed against the S
corporation.

(d) Deficiency Procedures Not To Apply-
Subchapter B of chapter 63 (relating to deficiency
procedures for income, estate, gift, and certain excise
taxes) shall not apply in respect of the assessment or
collection of any penalty imposed by subsection (a).'.

(b) Clerical Amendment- The table of sections for part I
of subchapter B of chapter 68 of such Code is amended by
adding at the end the following new item:

Sec. 6699. Failure to file S
corporation return.'.

(c) Effective Date- The amendments made by this section
shall apply to returns required to be filed after the date
of the enactment of this Act.

The percentage under subparagraph (B) of section 401(1)
of the Tax Increase Prevention and Reconciliation Act of
2005 in effect on the date of the enactment of this Act is
increased by 1.50 percentage points.